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Cheap Chinese Fuji apple is a memory

During the recent Asia Fruit Congress in Hong Kong, Steven Leung, Managing Director of Alfa Fruit Packers Limited, showed a report on Chinese apple export.

Apple production in China - the first producer in the world with more than 44% of the total - increased by 5 million tons in the past five years. In 2010 it reached 32 million tons, whose 7.13 million tons (25% of the total production) destined to export. Currently in China there are around 650 apple exporting companies.

Chinese Fuji prices (yellow line) has soared to new heights during the 2010 season compared to Washington apple (red line) and Chilean apple (green line).

2010 is the year of record prices. Fuji apple has grown further, prices for larger sizes (64/72/80) reached as much as US$40 C&F per 20 kg and prices for smaller sizes (100/113/125) reached as high as US$35 C&F per 20 kg.

The reasons for these high prices are:
1. Chinese currency appreciation
2. Inflation
3. Packing Material Cost
4. Labor Cost
5. Farmer Growing Cost
6. Speculation

The drop of exchange rate between US dollar and Chinese renminbi (RMB) is evidence of Chinese currency appreciation.

As for inflation, China's consumer price index hit a three-year peak of 6.4 percent in the month of June 2011. As the average price of food products increases, so does the apple price. Total overall inflation for the past four years officially around 10% per year. But unofficially is as high as 15-20% per year especially in the big cities.

Packing material cost, such as PVC, correlates to gas prices in China, which has increased 100% over the last 5 years. Paper prices have risen by 40% since 2005. Chinese labor costs are also in exponential growth. Younger workers flock to major cities in China and it is very difficult to hire young and efficient workers in growing areas. Farmers need to pay US$23.50 per day for bagging and de-bagging the apples comparing to US$4.70 per day in 2006.

In general, all growing costs are increased. Leung pointed out that chemical fertilizers prices increase from US $188/ton to US$626/ton since 2006, organic fertilizers (if they are used) also increased by 300% over the past five years and diesel oil for pumping water, and tractor transport increase by 200%.

As for speculation, the apple industry in China has a very low barrier of entry. Anybody who has a little extra cash can buy and store apples. Even the farmers speculate themselves (if the price is low, they store it) due to an increase in cold storage facilities, in CA storage facilities and Smart Fresh treatment use.

Qixia is the densest apple growing region in the world, named Apple Capital of China and its cold storage capacity is almost surpassing the total production of apples: in 2010 the Qixia total production was 1.2 million tons (total cold storage 2010: 1.1 million tons). This makes cold storage owners desperate for business, forcing them to reduce prices to attract more business, even from other growing regions.

Prolonging the life of the apples and the time of storage with CA and Smart Fresh, the speculators have more time to hedge for better prices to sell their apples for the summer months.

In the graph, speculation accounts for 50% in the upward trend of Chinese apple prices.

As for the current Chinese apple season, early varieties, such as Gala, Golden Delicious and red general, are moving very slowly, due to large amounts of Fuji
apples still in storage they are desperate to sell at any price. Therefore prices of early variety are depressed by as much 20%. It expects plenty of 2010 CA & Smart Fresh treated fruit, when the Fuji harvest begins in October 2011.

Causes for drastic price decrease:
1. Too much speculation: too much fruit in cold storage and a longer storage life increases apple availability in the summer months.
2. Fruits from South China such as longgan, leechee, oranges are cheap which makes apple less popular.
3. Appreciation of RMB makes imported fruit very attractive which means demand for apples decreases further.
4. Speculators are expecting the demand to be there in summer months like previous years.

According to Leung, there will be no more cheap Chinese Fuji due to factors other than speculation, even if it plays a major role in high prices. With Chinaís growing economy and Chinese appreciated currency, Chinese Fuji exports will decrease year by year because of the high export prices. Unless the world apples price increases, there is not much future for Chinese Fuji apple.

Publication date: 10/14/2011


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